The Importance of Mortgage Protection

25 Jul 2017

Around 14.5 million UK adults have a mortgage but only 50% hold any sort of Mortgage Protection, leaving the rest at risk of losing their home if they are affected by unforeseen events…

What happens if I die?

Most people who have mortgage protection take life cover. This will pay out a lump sum if you die, which can be used to pay off the mortgage. Anyone with dependents should definitely take life cover, so that their dependents can continue to live in the property after their death. If you are young and healthy premiums are very cheap.

What about if I get sick?

Nearly a fifth of mortgage holders said they had no idea how they would cover their household bills if they or their partner were unable to work due to incapacity, serious illness or an accident. A further 48% said their savings would only last a couple of months.

Whilst you may be eligible for Statutory Sick Pay (SSP) at £89.35 for up to 28 weeks, this is rarely enough to live off and pay a mortgage! Employees may also be entitled to Sick Pay dependent on their company’s policy and length of service.

Statistically, you are more likely to find yourself in mortgage arrears due to a long term sickness.

Insurance providers offer competitively priced “Income Protection Plans” which pay out a monthly income if you are unable to work due to sickness. The plan can be adjusted to pay out when your sick pay finishes, which will reduce the cost.

But I’m Self Employed…

More of the UK’s workforce is self-employed than ever before! The same goes for people now enjoying the flexibility of working on contracts. Fortunately the insurance industry have reacted to this and now provide a range of products for all employment types. Demand for Income protection for the Self Employed is increasing year on year.

So what is Critical Illness Cover?

Statistically the chances of you contracting a critical illness before age 65 is 1 in 4. However if you contract a critical illness before you are 65, you are more likely to survive it, than die from it!

Not to be confused with Income Protection, taking out critical illness cover means you will receive a lump sum to help manage your outgoings, pay off some of your mortgage or assist with lifestyle changes you may need to make if one of you becomes critically ill. Providers also include children’s critical illness cover for free (up to a specified amount). This could give you crucial financial peace of mind as you will receive a lump sum to help manage treatment/time off work etc if your child becomes critically ill.

The illnesses covered are vast, but the main claims come from Cancer, Heart Attacks and Strokes.

I’ve heard these policies don’t pay out?

It’s easy to confuse income protection or critical illness cover with Payment Protection Insurance (PPI), which was sold to thousands of people who didn’t qualify for the cover, and often didn’t even know they had it.

The industry has an excellent record for paying claims, in 2016 96.7% of Critical Illness claims were paid (over 10% for children) and 94.88% of Income Protection Claims were paid out.

So how much does it cost?

People spend anything between £5 and £200 a month on their protection.

Often we build “Menu Plans” for clients, which contain a bit of everything. This keeps the cost down and enables customers to take a plan which fits their own specific needs and budget

At Mortgage Required, our Protection Team are all about making sure you have the right cover at the right time of your life, giving you the peace of mind that you and your families will be able to keep their home and be financially covered come what may.

The Financial Ombudsman Service is an agency for arbitrating on unresolved complaints between regulated firms and their clients. More detail can be found on their website: www.financial-ombudsman.org.uk